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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2020

Commission File No. 001-31552

 

American Outdoor Brands Corporation

(Exact name of registrant as specified in its charter)

 

 

Nevada

 

87-0543688

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

2100 Roosevelt Avenue

Springfield, Massachusetts

 

01104

(Address of principal executive offices)

 

(Zip Code)

(800331-0852

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each Class

Trading Symbol

Name of exchange on which registered

Common Stock, par value $.001 per share

AOBC

Nasdaq Global Select Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

☐  

  

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

 

  

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

The registrant had 55,068,297 shares of common stock, par value $0.001, outstanding as of March 3, 2020.

 

 


AMERICAN OUTDOOR BRANDS CORPORATION

Quarterly Report on Form 10-Q

For the Three and Nine Months Ended January 31, 2020 and 2019

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

  

 

 

Item 1. Financial Statements (Unaudited)

  

4

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

22

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

  

33

 

Item 4. Controls and Procedures

  

33

 

 

 

 

PART II - OTHER INFORMATION

  

35

 

Item 1. Legal Proceedings

  

35

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

35

 

Item 6. Exhibits

  

35

Signatures

  

37

EX-31.1

  

 

EX-31.2

  

 

EX-31.3

 

 

EX-31.4

 

 

EX-32.1

 

 

EX-32.2

 

 

EX-32.3

  

 

EX-32.4

  

 

 

Smith & Wesson®, S&W®, M&P®, M&P Shield®, Performance Center®, Bodyguard®, Governor®, SW22 Victory®, T/C ®, America’s Master Gunmaker ®, Compass®, Contender®, Dimension®, Encore®, Triumph®, Weather Shield®, Caldwell®, Delta Series®, Wheeler®, Tipton®, Frankford Arsenal®, Lockdown®, BOG-POD®, Golden Rod®, Mag Charger®, Hooyman®, Schrade®, Old Timer®, Uncle Henry®, Imperial®, Non-Typical Wildlife Solutions®, Crimson Trace®, Lasergrips®, Laserguard®, Rail Master®, Shockstop®, Laserlyte®, Key Gear®, U-Dig-It®, Bubba®, Bubba Blade®, One Cut and You’re Through®, Gemtech®, G-Core®, Halo®, Integra®, World Class Silencers®, LiNQ®, Stinky Bubba®, and Turkinator™ are some of the registered U.S. trademarks of our company or one of our subsidiaries. American Outdoor Brands CorporationSM, M2.0™, SDVE™, Thompson/Center Arms™, Impact!™, Strike™, Venture™, Defender Series™, Instinctive Activation™, Master Series™, UST™, Blast Jacket™, One™, The Professional’s Choice for Decades™, and World Class Ammunition™ are some of the unregistered trademarks of our company or one of our subsidiaries. This report also may contain trademarks and trade names of other companies.

 

 

 


Statement Regarding Forward-Looking Information

 

The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts contained or incorporated herein by reference in this Quarterly Report on Form 10-Q, including statements regarding our future operating results, future financial position, business strategy, objectives, goals, plans, prospects, markets, and plans and objectives for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “targets,” “contemplates,” “projects,” “predicts,” “may,” “might,” “plan,” “will,” “would,” “should,” “could,” “may,” “can,” “potential,” “continue,” “objective,” or the negative of those terms, or similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. Specific forward-looking statements in this Quarterly Report on Form 10-Q include statements regarding the impact, if any, of recently issued accounting standards on our consolidated financial statements; assessments that we make about determining segments and reporting units; the features of our outstanding debt; estimated amortization expense of intangible assets for future periods; the outcome of the lawsuits to which we are subject and their effect on us; the proposed spin-off, including the timing and purpose thereof and the expected restructuring charges, our belief that inventory levels, both internally and in the distribution channel, in excess of demand, may negatively impact future operating results; our belief that it is difficult to forecast the potential impact of distributor inventories on future revenue and income as demand is impacted by many factors, including seasonality, new product introductions, news events, political events,  and consumer tastes; our assessment of consumer demand and factors that stimulate demand for our products; the effect on our business of various factors, including terrorism and the level of political pressures on firearm laws and regulations; expected inventory levels for future periods; future investments for capital expenditures; future products and product developments; the features, quality, and performance of our products; the success of particular product or marketing programs; our market share and factors that affect our market share; liquidity and anticipated cash needs and availability; the likelihood of reaching the maximum per occurrence self-insurance limit; our expectation that the majority of revenue from the outstanding performance obligations as of January 31, 2020 will be recognized during fiscal 2020; the expectation that the $3.1 million of unrecognized compensation expense related to unvested RSUs and PSUs will be recognized over a weighted average remaining contractual term of 1.3 years; our belief that our percentage increase in sales in handguns likely did not match NICS as a result of a combination of reporting changes in certain states, timing related to new product introductions, and fulfillment of consumer demand out of channel inventory, particularly by several key strategic retailers; our plan to rely on the national logistics facility in Boone County, Missouri for substantially all of our product distribution; the potential exposure to credit and market risks, including, but not limited to, the failure of any counterparty to perform under the terms of the derivative contract or the adverse effect on the value of the financial instrument resulting from a change in interest rates; our belief we are maintaining handgun market share; the increase to our fourth quarter general and administrative expenses because of the separation agreement with our former President and Chief Executive Officer; our belief that our inventory levels will allow us to mitigate some of the impact of the coronavirus to our business in the short term; and our belief that our percentage decrease in sales likely did not match NICS because of a combination of ongoing disruptive pricing pressure in the market for our modern sporting rifles as well as the reasons described above in our comparison of handgun NICS. All forward-looking statements included herein are based on information available to us as of the date hereof and speak only as of such date. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. The forward-looking statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q reflect our views as of the date of this Quarterly Report on Form 10-Q about future events and are subject to risks, uncertainties, assumptions, and changes in circumstances that may cause our actual results, performance, or achievements to differ significantly from those expressed or implied in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, performance, or achievements. A number of factors could cause actual results to differ materially from those indicated by the forward-looking statements. Such factors include, among other, economic, social, political, legislative, and regulatory factors; the potential for increased regulation of firearms and firearms-related products; actions of social activists that could have an adverse effect on our business; the impact of lawsuits; the demand for our products; the state of the U.S. economy in general and the firearm industry in particular; general economic conditions and consumer spending patterns; our competitive environment; the supply, availability, and costs of raw materials and components; speculation surrounding fears of terrorism and crime; our anticipated growth and growth opportunities; our ability to increase demand for our products in various markets, including consumer, law enforcement, and military channels, domestically and internationally; our penetration rates in new and existing markets; our strategies; the completion of our proposed spin-off and the operations and performance of the two separate companies thereafter; our ability to maintain and enhance brand recognition and reputation; risks associated with the establishment of our new 632,000 square foot national logistics facility including the expected benefits; our ability to introduce new products; the success of new products; our ability to expand our markets; our ability to integrate acquired businesses in a successful manner; the general growth of our outdoor products and accessories business; the potential for cancellation of orders from our backlog; and other factors detailed from time to time in our reports filed with the Securities and Exchange Commission, or the SEC, including our Annual Report on Form 10-K for the fiscal year ended April 30, 2019, filed with the SEC on June 19, 2019.

 

 

 

 


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN OUTDOOR BRANDS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

As of:

 

 

 

January 31, 2020

 

 

April 30, 2019

 

 

 

(In thousands, except par value and share data)

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

46,101

 

 

$

41,015

 

Accounts receivable, net of allowance for doubtful accounts of $2,010 on

   January 31, 2020 and $1,899 on April 30, 2019

 

 

101,822

 

 

 

84,907

 

Inventories

 

 

201,536

 

 

 

163,770

 

Prepaid expenses and other current assets

 

 

9,575

 

 

 

6,528

 

Income tax receivable

 

 

4,749

 

 

 

2,464

 

Total current assets

 

 

363,783

 

 

 

298,684

 

Property, plant, and equipment, net

 

 

164,341

 

 

 

183,268

 

Intangibles, net

 

 

78,346

 

 

 

91,840

 

Goodwill

 

 

182,267

 

 

 

182,269

 

Other assets

 

 

19,410

 

 

 

10,728

 

 

 

$

808,147

 

 

$

766,789

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

31,843

 

 

$

35,584

 

Accrued expenses and deferred revenue

 

 

43,131

 

 

 

39,322

 

Accrued payroll and incentives

 

 

14,189

 

 

 

21,473

 

Accrued income taxes

 

 

265

 

 

 

175

 

Accrued profit sharing

 

 

1,699

 

 

 

2,830

 

Accrued warranty

 

 

4,208

 

 

 

5,599

 

Current portion of notes and loans payable

 

 

 

 

 

6,300

 

Total current liabilities

 

 

95,335

 

 

 

111,283

 

Deferred income taxes

 

 

9,595

 

 

 

9,776

 

Notes and loans payable, net of current portion

 

 

199,034

 

 

 

149,434

 

Finance lease payable, net of current portion

 

 

40,202

 

 

 

45,400

 

Other non-current liabilities

 

 

13,482

 

 

 

6,452

 

Total liabilities

 

 

357,648

 

 

 

322,345

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $.001 par value, 20,000,000 shares authorized, no shares

   issued or outstanding

 

 

 

 

 

 

Common stock, $.001 par value, 100,000,000 shares authorized, 73,234,996 issued

   and 55,068,134 shares outstanding on January 31, 2020 and 72,863,624 shares

   issued and 54,696,762 shares outstanding on April 30, 2019

 

 

73

 

 

 

73

 

Additional paid-in capital

 

 

264,866

 

 

 

263,180

 

Retained earnings

 

 

407,862

 

 

 

402,946

 

Accumulated other comprehensive income

 

 

73

 

 

 

620

 

Treasury stock, at cost (18,166,862 shares on January 31, 2020 and

   April 30, 2019)

 

 

(222,375

)

 

 

(222,375

)

Total stockholders’ equity

 

 

450,499

 

 

 

444,444

 

 

 

$

808,147

 

 

$

766,789

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


AMERICAN OUTDOOR BRANDS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME/(LOSS) AND COMPREHENSIVE INCOME/(LOSS)

(Unaudited)

 

 

 

For the Three Months Ended January 31,

 

 

For the Nine Months Ended January 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In thousands, except per share data)

 

Net sales

 

$

166,695

 

 

$

162,008

 

 

$

444,753

 

 

$

462,544

 

Cost of sales

 

 

111,492

 

 

 

107,949

 

 

 

291,390

 

 

 

299,677

 

Gross profit

 

 

55,203

 

 

 

54,059

 

 

 

153,363

 

 

 

162,867

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

3,192

 

 

 

3,297

 

 

 

9,410

 

 

 

9,358

 

Selling, marketing, and distribution

 

 

19,294

 

 

 

15,373

 

 

 

55,419

 

 

 

42,279

 

General and administrative

 

 

21,810

 

 

 

27,026

 

 

 

71,601

 

 

 

78,065

 

Goodwill impairment

 

 

 

 

 

10,396

 

 

 

 

 

 

10,396

 

Total operating expenses

 

 

44,296

 

 

 

56,092

 

 

 

136,430

 

 

 

140,098

 

Operating income/(loss)

 

 

10,907

 

 

 

(2,033

)

 

 

16,933

 

 

 

22,769

 

Other (expense)/income, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income/(expense), net

 

 

(18

)

 

 

47

 

 

 

73

 

 

 

38

 

Interest expense, net

 

 

(2,885

)

 

 

(2,548

)

 

 

(8,551

)

 

 

(6,822

)

Total other (expense)/income, net

 

 

(2,903

)

 

 

(2,501

)

 

 

(8,478

)

 

 

(6,784

)

Income from operations before income taxes

 

 

8,004

 

 

 

(4,534

)

 

 

8,455

 

 

 

15,985

 

Income tax expense

 

 

2,273

 

 

 

1,191

 

 

 

3,539

 

 

 

7,399

 

Net income/(loss)

 

 

5,731

 

 

 

(5,725

)

 

 

4,916

 

 

 

8,586

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized loss on interest rate swap

 

 

(92

)

 

 

(834

)

 

 

(710

)

 

 

(991

)

Other comprehensive loss, before income taxes

 

 

(92

)

 

 

(834

)

 

 

(710

)

 

 

(991

)

Income tax benefit on other comprehensive loss

 

 

26

 

 

 

217

 

 

 

163

 

 

 

257

 

Other comprehensive loss, net of tax

 

 

(66

)

 

 

(617

)

 

 

(547

)

 

 

(734

)

Comprehensive income/(loss):

 

$

5,665

 

 

$

(6,342

)

 

$

4,369

 

 

$

7,852

 

Net income/(loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.10

 

 

$

(0.10

)

 

$

0.09

 

 

$

0.16

 

Diluted

 

$

0.10

 

 

$

(0.10

)

 

$

0.09

 

 

$

0.16

 

Weighted average number of common shares

   outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

55,064

 

 

 

54,544

 

 

 

54,919

 

 

 

54,444

 

Diluted

 

 

55,744

 

 

 

54,544

 

 

 

55,641

 

 

 

55,132

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


AMERICAN OUTDOOR BRANDS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Stock

 

 

Paid-In

 

 

Retained

 

 

Comprehensive

 

 

Treasury Stock

 

 

Stockholders’

 

(In thousands)

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income/(Loss)

 

 

Shares

 

 

Amount

 

 

Equity

 

Balance at October 31, 2018

 

 

72,706

 

 

$

73

 

 

$

258,126

 

 

$

398,846

 

 

$

1,572

 

 

 

18,167

 

 

$

(222,375

)

 

$

436,242

 

Proceeds from exercise of employee stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

2,118

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,118

 

Shares issued under employee stock purchase plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized loss on interest rate swap,

   net of tax effect

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(617

)

 

 

 

 

 

 

 

 

(617

)

Issuance of common stock under restricted stock

   unit awards, net of shares surrendered

 

 

9

 

 

 

 

 

 

(32

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(32

)

Other (rounding)

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Net loss

 

 

 

 

 

 

 

 

 

 

(5,725

)

 

 

 

 

 

 

 

 

 

 

 

(5,725

)

Balance at January 31, 2019

 

 

72,715

 

 

 

73

 

 

 

260,212

 

 

 

393,122

 

 

 

955

 

 

 

18,167

 

 

 

(222,375

)

 

 

431,987

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2018

 

 

72,434

 

 

 

72

 

 

 

253,616

 

 

 

389,146

 

 

 

1,689

 

 

 

18,167

 

 

 

(222,375

)

 

 

422,148

 

Proceeds from exercise of employee stock options

 

 

33

 

 

 

 

 

 

215

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

215

 

Stock-based compensation

 

 

 

 

 

 

 

 

6,070

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,070

 

Shares issued under employee stock purchase plan

 

 

108

 

 

 

 

 

 

943

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

943

 

Change in unrealized loss on interest rate swap,

   net of tax effect

 

 

 

 

 

 

 

 

 

 

 

(734

)

 

 

 

 

 

 

 

 

(734

)

Impact of adoption of accounting standard updates

 

 

 

 

 

 

 

 

(4,610

)

 

 

 

 

 

 

 

 

 

 

 

(4,610

)

Issuance of common stock under restricted stock

   unit awards, net of shares surrendered

 

 

140

 

 

 

1

 

 

 

(632

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(631

)

Net income

 

 

 

 

 

 

 

 

 

 

8,586

 

 

 

 

 

 

 

 

 

 

 

 

8,586

 

Balance at January 31, 2019

 

 

72,715

 

 

 

73

 

 

 

260,212

 

 

 

393,122

 

 

 

955

 

 

 

18,167

 

 

 

(222,375

)

 

 

431,987

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at October 31, 2019

 

 

73,226

 

 

 

73

 

 

 

266,582

 

 

 

402,131

 

 

 

139

 

 

 

18,167

 

 

 

(222,375

)

 

 

446,550

 

Proceeds from exercise of employee stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

(1,672

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,672

)

Shares issued under employee stock purchase plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized loss on interest rate swap,

   net of tax effect

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(66

)

 

 

 

 

 

 

 

 

(66

)

Issuance of common stock under restricted stock

   unit awards, net of shares surrendered

 

 

9

 

 

 

 

 

 

(44

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44

)

Net income

 

 

 

 

 

 

 

 

 

 

5,731

 

 

 

 

 

 

 

 

 

 

 

 

5,731

 

Balance at January 31, 2020

 

 

73,235

 

 

 

73

 

 

 

264,866

 

 

 

407,862

 

 

 

73

 

 

 

18,167

 

 

 

(222,375

)

 

 

450,499

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2019

 

 

72,864

 

 

 

73

 

 

 

263,180

 

 

 

402,946

 

 

 

620

 

 

 

18,167

 

 

 

(222,375

)

 

 

444,444

 

Proceeds from exercise of employee stock options

 

 

15

 

 

 

 

 

 

74